Good day everyone and welcome to today’s Kforce Inc fourth quarter 2008 earnings conference call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Michael Blackman, Senior Vice President, Investor Relations. Please go ahead, sir.

Good afternoon and welcome to the Q4 Kforce conference call. Before we get started, I would like to remind you that this call may contain statements that are forward-looking. These statements are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results may differ materially because of factors listed in Kforce’s 10-K and 10-Q and other reports and filings with the Securities and Exchange Commission. We cannot undertake any duty to update any forward-looking statements. I would now like to turn the call over to David Dunkel, Chairman and Chief Executive Officer. Dave?

Thank you, Michael. You can find additional information about Kforce on our 10-Q, 10-K, and 8-K filings with the SEC. We provide substantial disclosure in our release and our hope is that this will improve the dissemination of information about our performance and the quality of this call. We are very pleased with our team’s performance even as the macroeconomic environment deteriorated significantly throughout the quarter. Against that backdrop, our teams did a great job persevering and delivering great results. Kforce began preparing for this downturn at the end of the last one. We have made a number of significant changes to our business model, service offerings, support organization and most importantly, our culture. 2008 marks the end of our last three-year plan which resulted in several significant accomplishments including entering the government space through KGS which now has over $100 million in annualized revenue, substantial growth and evolution of our HLS segment which is now running at close to $200 million in annualized revenue, evolution of our national accounts program, further development in refinement of our national recruiting center and support of our field teams and national accounts, modification of our search model, contribute to the up-cycle without the substantial online costs in the down-cycle, exiting the nursing and scientific businesses, and maintaining a domestic focus with an emphasis on market penetration. F-flex which comprises of approximately 50% of our revenue appears thus far to be behaving very differently this downturn and remains a very attractive component of our revenue mix. In addition, our technology infrastructure is complete and up-to-date with all major investments behind us. We achieved most of our goals in this plan even if last year, 2008, was a substantially different economic environment than originally anticipated. We now move into year one of our next three-year…

Thank you, Dave and thanks to all of you for your interest in Kforce. We are very pleased with our fourth quarter results. We did a good job in a very difficult operating environment and we believe our continued success is a result of our great people and our diverse segment offerings. Revenues of $241 million declined 0.9% sequentially on a billing-day basis driven primarily by declines in clients’ accounting, our HLS professional staffing business and our search business. Flex revenues which represent 95% of our revenue stream decreased sequentially for the first time in three years to $228.2 million. Though they were flat on a billing-day basis, we are proud that this is the sixth consecutive year of increased revenues for continuing operations. Our technology business segment improved 1.3% sequentially on a billing-day basis, even though technology search declined 17% sequentially. Our technology flex business which represents roughly 51% of total firm revenues increased 2.1% sequentially and declined 2.6% year-over-year on a billing-day basis. Our technology flex business continued to be stable during the quarter, although we anticipated a sequential decline in Q1 as a result of typical assignment ends. Recent trends indicate that the demand environment today for the technology flex may be different from the previous recession. Specifically, our technology offering has not shown declines in activity consistent with other staffing disciplines including our finance and accounting products. We continue to watch our internal activity levels in this business closely as current visibility is limited. However, it appears that financial sectors have not overhired during the recent economic expansion and unlike the year 2000, we do not see the same exaggerated tech bubble that had developed previous to the last economic downturn. Our government business had very strong sequential growth at 15.3% on a billing-day basis. During…

Thank you, Bill. The firm’s performance in the fourth quarter exceeded our guidance both in terms of revenue and earnings per share. We believe our ability to exceed expectations during the difficult business environment in the fourth quarter is a reflection of our strong management team and extreme focus on execution within our clients as well as along those items such as expense management that we can control. Revenues for the quarter of $241 million were down 2.4% from Q4 2007 and down 4% sequentially. Flex revenues of $228.2 million were very consistent throughout Q4 and flat on a billing-day basis. Search revenues of $12.8 million continue to see the increasing impact of the economic slowdown, with a search decline of 17.5% sequentially and 27.6% year-over-year. Our strongest businesses continue to perform well. Our technology flex segment which continued to be very stable increased 2.1% sequentially and decreased 2.6% year-over-year on a billing-day basis. HLS was down 7% sequentially but up 4.4% year-over-year on a billing-day basis. Our government solutions segment increased 15.3% sequentially and 23.8% year-over-year on a billing-day basis including a contribution of $3.3 million in revenue in Q4 from the acquisition of dNovus RPI on December 2. The HLS and government solutions segments now account for 27.3% of total revenues, up from 23.9% in Q4 of 2007. The continued growth of HLS and government solutions segments which were focused in the end of some of the areas of greatest demand bring increasing stability to our revenue stream as a result of the long-term nature of their contracts. Revenue trends for the beginning of the first quarter of 2009 have been mixed versus 2008 activity which is lower than Q4 activity. Flex revenues for the first four full weeks of January are down 1.8% year-over-year with tech flex…

I won’t close quite yet. We might take a question or two, Joe. Let’s open it up to questions, thanks.

(Operator Instructions) We’ll go first to Mark Marcon with R.W. Baird. Mark Marcon – Robert W. Baird & Co., Inc. On the tech flex side, your performance is better than I would have expected given the macro backdrop. Can you talk about how it seems like you’re gaining share, can you talk a little bit about what you think may be driving that? Were there any large client signings? Are you seeing certain clients that are ramping up or are there any particular pockets in terms of skill sets where there seems to be a particular level of activity?

Hi, Mark. This is Bill. I would say to that, no, there isn’t any particular thing that stands out. As we look at it and the same as what the other companies have reported, the only thing that we can say is that we have performed very well. We’re executing well. Our team has been in place for a number of years now and it is really gelling. I’m really proud of the work they’ve done. They’ve really kept after it. There’s no particular client skill set or other initiatives that would suggest something different for our tech practice. We just come in and try to serve our clients every day. Mark Marcon – Robert W. Baird & Co., Inc. So you don’t feel like you’re getting more orders or filling orders faster than others?

Mark, this is Dave. First, I think there are probably several elements. We built a culture which is based on, it’s accountability-driven, and it’s based on KPIs. One thing that we have done, that we talked about in the past is that we featured with the NRC, the speed in which we can move is significantly enhanced. We’re able to deploy at scale to markets and service lines that frankly are, we think, competitive advantages for us in the way that we are able to service clients. I am aware of a couple of examples where in a highly competitive situation, we substantially outperformed our competition. I think to some degree that is a result of the talent and the people and the culture, and I think it is to some degree, the result of the design of the model that we’ve put in place. We’re counting ourselves fortunate and it is really by God’s grace, I guess. Mark Marcon – Robert W. Baird & Co., Inc. Can you talk a little bit about what you’re seeing on the pricing side and what you’re seeing in terms of the flow of orders? I really appreciate the transparency in terms of what you would expect to happen. I was wondering if you could indicate is that across the board or specific verticals where you’re seeing that, and I am talking specifically about the tech flex bill rates that are likely to decline.

Certainly, our clients are all watching prices very closely as you would expect and we’ve seen some more aggressive pricing situations with some clients than others. I think that Joe has indicated and he’ll tell you again that what we see in the bill rates and pay rates, they haven’t changed that much, but Joe why don’t you tell us a little bit about that.

Mark, just to give you a little more color by service line by a bill rate-pay rate. On a year-over-year basis, F&A from a bill-rate standpoint was down about 3.6%. Tech is down about 2.9% and HLS is up 7%. From an average pay rate on a year-over-year, F&A is down 3.8% and tech is down 2.5%. HLS is up 16.8%. So from a total picture standpoint, basically, bill rates are up 0.5% while pay rates are up 2.2% and that’s really what’s driving the margin depression. I’d say it’s pretty consistent in terms of supply and demand and the market pressures that our people are experiencing. Mark Marcon – Robert W. Baird & Co., Inc. On the tech side, is there anything that prohibits you, do you have a lot of mark-up contracts where you wouldn’t be able to as opposed to bill-rate contracts where you may not be able to immediately reduce the pay rates or how should we think about that?

Our contracts are a combination of all the above. It’s the typical lag in terms of when you can circle back with the consultant and when you can really adjust the pay rate whether it’s at the total contract prior to the renewal or if there is something more immediate like we’ve experienced with certain customers where they have had immediate needs to adjust bill rates, we’ve had an opportunity to direct re-paths on the long-term. So it’s market by market, skill set by skill set, decision process that you really have to go through.

We’ll go next to Kevin McVeigh with Credit Suisse.

Just a couple quick thoughts. Relative to the top R&D, the earnings came in; the incremental margins were a lot stronger. Was there anything particular that stood out, particularly given the run-off on the perm side?

I would say, Kevin, there is probably three main drivers for some of the operating leverage that we experienced in the quarter. One of those, we started out very early and I think we even mentioned it on the last call, our personnel has been relentless on managing variable expenses and controlling what they can control. I think we saw a little bit more of that traction as the quarter unfolded. A couple other areas, one of the bigger areas is we did observe some productivity in improvements from Q3 to Q4 and even a greater expansion on a year-over-year basis. That’s really attributable to the exiting of low performers and people that just weren’t ramping up. We continue to see more of our population moving from the less than two years of experience into the greater than two years of experience. Those people are much more productive, that have been around for that period of time. Really, the third piece when you are looking at it sequentially is as I mentioned in my opening comments, we did take an approximately $3 million charge to our high debt reserve in Q3 and if you look at the face of what we sent out, we actually had a slight pick-up. I think it was $200,000 in Q4. So those are really the three big buckets.

Just a thought on tech more recently, if you could kind of talk to, and Dave, your thoughts would be really helpful here, if you think about the project versus the maintenance, the mix of that today as opposed to the life cycle, what are your thoughts on that as you work your way through, and just if you could give any color on that and any incremental feedback you’ve gotten from companies as they prepare and work on their own projects, particularly on the tech side?

I will comment and then we will get some from Bill as well. I would say relative to the last downturn, a great deal of the investment in the last downturn was ramping up new data centers, new developments and significantly impacted by dot-com and by Y2K, so this particular time, there’s no question that we did not see the overhiring. It was much more measured. There is also a significant change in the nature of tech in that our data security is absolutely essential now. It’s not optional. You can’t make a decision to turn it off. The environment that we’re operating in has consequences in and of itself keeping the networks up and all of the infrastructure and servers up. I think that there is also a little bit of lag in making investments in the ERPs and CRM systems so we started to see that about the middle of the cycle so there were some one-offs associated with them. The Web has clearly impacted the business models and there is a real urgency to keep the face of the customer refreshed and to enable e-commerce so we see a lot more of that happening. I would say, in general, that it’s really a combination of all of those things. There isn’t an opportunity for any client today to say okay, we don’t want to do that anymore. They really have to support for a minimum of a substantial operation. Bill, do you want to add anything to it?

The only other piece that I would add to that is an observation. Having been in and around the tech business for about 21 years at this point in time, in the zapping business, when I got into this business, the economic buyer was the CFO. Most technology functions reported up through the CFO. There were a lot of ROIs and decisions that were in and around that. Having lived through the late 90’s and early 2000’s, many of the economic decision makers at that point in time was the CIO. There weren’t as many true ROIs that were tied to that. In reality, at this point in time, it’s almost gone full swing. We see the CFOs, a lot of technology functions are now reporting up through that organization and they’re much more involved in the decision-making process. I think that is really what has provided more of a tempered type environment through this recovery versus that bubble that we experienced in the late ‘90s.

It sounds to me like Joe is making a play for Bill, here. Any other questions, Kevin?

We’ll go next to Michael Baker with Raymond James.

I was wondering if you could update us in terms of the opportunities that you’re seeing for the government business in light of the government taking on an increased roll in the economy.

Well, certainly we are seeing a more active administration than we have before, that and the talk and everything else that they are doing; I think that there will be more business there. We actually have 18 proposals awaiting awards. We have some slowdowns between the time that obviously we elected a new President and when they’re taking over. So we’re seeing some slowdown there but we expect revenue to increase. Of course, we’ve got organic growth and we’ve got the acquisition but I would suggest that next quarter we should see somewhere around 90% overall growth and for the year, we should see somewhere around 50% overall growth when you utilize the acquisition and organic growth. We’re pleased with that growth based on that and the acquisition working out very well. Hopefully by the end of this quarter, we will be substantially complete on that acquisition. So it is working out well for us.

I was wondering if you could comment and give some additional color on the CRO business. It appears as though in the opening remarks that there was some commentary around maybe a slowdown there but it seems as though the pipeline was still there but coming later in the year. I was just wondering if there are any cancelations or if it is just kind of an elongation of some of those opportunities.

Well, we have our CRO business much more in alliance with our large pharma, as we look at this. I would say, yes, there has been some slowdown. At the end of the year, we have paid time off that becomes a big deal for us historically because most of these large file pharmas close down over the holidays. I would say to you that there are some, as I mentioned in my remarks, there is some slowdown that we see at the moment, and we expect that that should reverse itself as we begin the second half of the year, as we see some promising aspects of client activities. At the moment, there are pricing pressures and pressure on these large file pharmas but they of course need to have the stream of new drugs in the pipeline and that’s what they need to have the clinical trials.

I would like to add that our competitive position is very strong here. In the space that we occupy, not in CRO space, but really in the alliance partner space, I would say that we’re a clear leader. As a result of that, really a partner of choice in many of these clients.

We’ll go next to Tobey Sommer with Suntrust Robinson Humphrey.

Maybe my question has been answered. Can you go through; I think I missed it in the prepared remarks, what the trends were like in the temp side, I think you did it by segments.

In the fourth quarter?

In the early part of the first, I think you commented on what trends are like in the first several weeks.

The first several weeks, I referenced from a tech flex standpoint, tech flex was down 2.1%, finance and accounting was down 21.9% and that’s for the first four weeks on a year-over-year basis. Search was down 56.5% based upon the first six weeks on a year-over-year basis.

The tech flex, 2.1%, is that a sequential change?

No, that’s a year-over-year change based on comparing the first four weeks of 2008 to the first four weeks of 2009 in January.

A question for you. I know the way that you integrate acquisitions, organic numbers aren’t easy to quantify because of the swapping of accounts, etc. It seems like your revenue at performance in the quarter versus the industry was pretty significant. What sort of contribution at the top-line was there in the quarter from acquisitions?

From a tech standpoint, the last tech acquisition that we did was in the early part of February 2006. So it has been quite some time ago. That business has long been integrated.

I wasn’t referring to tech specifically, even generally.

The only acquired revenue is in dNovus, that’s $3.3 million.

It looks like the domestic footprint focusing on professional staffing is headed pretty well in 2009. You’re buying up stock; you did a very aggressive job in that in 2008. The cash that the business is generating is quite significant. Have you seen yet seller expectations move down to a level that is adequate or is the severity of this downturn likely to just push out deals until sellers have some EBITDA to show?

I thought you were referring initially to stock repurchases. Those are always open on that front. We have not seen there is some of the traditional staffing; some are on the acquisition front that is adjusting prices. I think as the recognition and acceptance of the duration and severity of the downturn starts to sink in, there are those taking on a different posture and are thinking more about survival. I would say at this point, we’re not compelled to do anything. We can actually wait them out. From a pricing standpoint, we have a very high hurdle. We can be very selective, particularly in the staffing front, and can see where we can selectively add talent to some of our existing markets. So we don’t have to do anything, so we are going to be very opportunistic.

One last question. How much remaining do you have on your share repurchase authorization?

Nearly $75 million.

We’ll go next to Clint Fendley with Davenport.

Dave, you’ve seen a number of cycles in this industry and it seems we’ve never seen search decline as substantially and as rapidly as we’ve seen during this recession. How do you think this might affect some of your smaller, less well-capitalized competitors and your ability to gain share here?

Well, I want to address the inference that I’m old and actually affirm that. My birthday is in two days to some of a small intent; I will be turning double nickels. I just want to say you are not rid of me yet. Actually, we are seeing search fall out much more quickly which is not unexpected in the severity of this climate. During the last downturn, I believe it was seven quarters from peak to trough. We may see that happen much more quickly this time. The good news for us as Joe and Bill both mentioned, by design, we had a much different model going in. So while we will experience some GP and some SG&A impact, we don’t have anywhere near the real estate concentration and underlying costs that are substantially mitigated. We look at search as supplemental to our existing business. It’s an excellent service offering for our clients but at the same time, we never allowed it to become too significant a portion of our total revenue. So in this climate, and I think it’s been pretty much confirmed by other firms in our space, that we’re probably seeing a search decline this time that’s even greater than the last cycle.

Probably a reach here, is there anything in the stimulus bill currently which could provide some type of near-term benefit to your results?

We’re thinking that there is going to be a lot of CEOs that are going to want to be contracted back for more than $500,000. When you think about it, a contract CEO business works very well in that climate. There are some opportunities if they actually do the bad asset bank. We are seeing some other smaller pieces but nothing on the scale of the RTC that we saw back in ’90-’91.

We’ll go next to Josh Vogel with Sidoti & Company.

Most of my questions have been asked already, but I was just wondering, did you say that headcount was down 7.1% year-over-year last quarter?

No, sequentially it is down 7.1%, and 11.9% year-over-year.

Was this voluntary by these sales associates or were they fired?

It’s a combination of both. We are very aggressive on making sure that low-performers are exited on a timely basis.

I know you said you’re seeing some aspects of client activity and you think there’s going to be a nice rebound in the back half of the year on the CRO business, but some of your other competitors have discussed that their former clients were looking to outsource this business overseas. I was wondering if you were seeing that from any of your clients.

No, we have not heard of that. That is a major aspect of what many of our clients are doing. We have some pretty close relationships with many of our clients and that is not on the table at the moment.

Just a reminder, Josh, we are not a CRO.

We do it differently than a CRO would outsource it overseas. You wouldn’t see us doing that.

Just lastly, is there any seasonality in the dNovus business?

In the government business, well, there was some this time because the government declared December 26 to be a holiday which they didn’t do last year. So there gets to be a little seasonality. There’s a lot more PPO time in the government business because it’s the end of the year, people are taking vacation. It becomes very slow. There is some seasonality from that standpoint, yes.

We’ll take a follow-up from Mark Marcon with R.W. Baird. Mark Marcon – Robert W. Baird & Co., Inc. Can you go to the SG&A, you did have, even if we adjust for the swing in terms of bad debt expense, it’s still a nice decline sequentially. You mentioned that there was a 7.1% decline in headcount. What I’m trying to figure out is, how much of the decline on the SG&A side, would this be a natural byproduct of the reduction in terms of gross profit as opposed to the active headcount management that you’re undertaking, and how should we think about that for the first quarter?

Mark, it’s the active management of moving non-productive individuals as well as I mentioned, our mix of populations in the different tiers that we look at continues to move in a favorable direction. At this point in time, 50% of our total associate population has been with Kforce greater than two years, where if I go back to even the beginning of 2007, that number was around 30%. That has a material impact in terms of productivity and operating results because realize that those non-productive people, if that person is $40,000 or $50,000 in a non-contributing job, virtually any gross profit will never move. All of that goes directly to the bottom line. Mark Marcon – Robert W. Baird & Co., Inc. In terms of the way the force is currently structured, do you feel like you took one big cut and we’re in a decent spot where you’re going to continue to monitor productivity and we’ll continue to adjust depending on what the man-trends would dictate?

We were down 11.9% for the year, 7.1% for the quarter so sequentially, that was certainly more this quarter. We will continue to align revenues and expenses. The variable costs including headcount and all the other variable costs that Joe mentioned earlier like travel and lease expenses, all of those things we will continue to aggressively manage. As Joe indicated, hopefully there is not a deep recession but planning for that and hoping for something better.

The turnover of less than 1-year people, that’s part of this business. What you’re really seeing reflected there is not really some radical change in business practice in terms of how we’ve been handling performance management. This is how we run the business in good times and this is how we run the business in tough times. Where you’re really seeing the lag effect or the effect from an operating margin improvement is the more selective, where are we replacing individuals because we’re replacing individuals on most teams that are very productive versus teams that are non-productive because when you bring people into non-productive teams in this type of climate, they don’t stand a shot at being successful. So I wouldn’t say that anything has drastically changed in terms of how we manage our population from a performance management standpoint. It’s really more about the volume of additional hires that are coming in and that lag that you’re seeing in impact to operating results. Mark Marcon – Robert W. Baird & Co., Inc. One short-term question and one longer-term question. The short-term question on the government side, Bill, it sounded like you were suggesting that things would pick up even on government in the second half. Is that because you would expect that the RFPs that you’ve been active in would become active by that point?

Well, I think there are several things. One, the fourth quarter was unusually difficult because of stop-work orders and because of the extra holiday. Of course, we had an extra holiday for the inauguration in the first quarter as well. So Mark, while I don’t think the fourth quarter is an easy beat, I think as we indicated there are 18 proposals out there, 16 of those proposals are 100 days past due on awards. So yes, we believe some of those will come in and pick things up. As this administration gets a foothold and where they’re going, what they’re doing, we expect there to be both organic growth and growth from the acquisition. Mark Marcon – Robert W. Baird & Co., Inc. I was just wondering if Dave could expand a little bit on his opening comment in terms of redesigning to become the staffing company of the future and specifically how we should think about that or if there’s any additional color you can provide there?

What I was referring to was our three-year plan which really took place over a 12 month period of time. There are several initiatives in there all designed to accelerate revenue growth and enhance operating leverage while providing exceptional service to our clients. I won’t go into much greater detail but I will say that yes, we are very, very focused on the model as we go through this. As you’ve seen, as talent evolves and matures and productivity goes up, we believe that along with the great people that really are now demonstrating what we’ve always believed and that is that they are some of the top talent in the industry. As those people are equipped with greater tools, greater efficiency and speed to market, we believe that we are really going to be in a better position competitively. I would say at this point the focus has been culture and culture is working. Mark Marcon – Robert W. Baird & Co., Inc. I’m assuming you’re also talking about specifically in terms of greater tools, things like what you’re doing in terms of utilizing technologies to improve the recruiting process and the national recruiting center and things of that nature and that there’s still more to come?

As Bill said, we’ve, over the last several years, upgraded all of our technology. We completed IP telephony and integration into our Pro Phone system. We have CRN, ERP upgrades, wireless. There is a tremendous amount that has been done to enable our teams to be more flexible and to work more quickly. In addition to that, we have a business process group that has been refining business process to help us to be more efficient, after that, even further. It really is all aimed at that customer to deliver exceptional service and aimed at our people to make them more productive and to help them to deliver better service. We feel that some of the performance on the fourth quarter has been as a result of that. We also recognize that there are still a lot of challenges ahead so we’re not yet taking our blinders off; we’re not putting blinders on here. We’re going to stay at the post. We want to close the call now; we appreciate your interests in and for your support of Kforce. Really, once again, thanks to our team, for all of our folks for performing very well in these incredibly difficult conditions. Thanks to everyone of you, field and corporate, and to our consultants and clients for allowing us the privilege of serving them. Thank you very much.